Sponsored links (also known as pay per click) are shown at the top of many search engines and directories. Their are the primary way that search engines and directories make money.
How it works
You go to your favorite search engine (For instance Google) and look down at the bottom of the page. All of them have some kind of note at the very bottom of pretty much every page saying something along the lines of "Advertising Programs" or "Business Programs". You click on these links and basically you get walked through a sales pitch where everything sounds simple, affordable and you sign up thinking you are going to spend a few dollars and get rich.
But that is not the way it really works. Sponsored links can work for "some companies" and be a giant financial hole for others. Much of the difference is in how much time you are willing to spend "learning" what they don't tell you. For instance all the "recommended" options tend to (without your understanding it) choose the options that benefit the search engines the most (They get more of your money). The standard settings are set to maximize the search engines profits (and your costs).
Lets say you live in a little town and you are a dentist. You know that the reality is that most people will not drive more than 20 miles to come see you. However, what you do not realize when you set up your Adwords campaign is that the recommended (standard setting) for pay per click on the search engine is for all clicks for the USA "and" Canada. It's not until you get the bill and try to understand it that you realize you live in Florida and you were paying for clicks for people in California and Montreal.
How Pay Per Click Works
The basis of Pay Per Click advertising is that you are in a bidding system against other companies. The search engines used to show you the other people's bids. Not any more. So you are bidding against them blindly. You could be bidding way to much or way to little. Either way the search engine wins. And another problem is that if you bid high enough to move your Pay Per Click advertisement to the number one position, the other companies are likely to raise their bids too. Forcing you to raise your big even more. To be honest it can be quite addicting. Unfortunately, just like gambling, you put money in, but don't really understand the odds are stacked against you.
Quality and Clarity
One of the factors that affects your bid is the "quality of your site". Let's face it, the search engines don't really want some junky website winning the number one spot. So if you have a really good website (optimized) that visitors stay on a long time (indicated they like it) and visit many pages on, then most of the search engines will charge you less to be in the number one spot than a website full of broken links. Another factor is clarity and relevance. Let's say that you are bidding for the words "truck tires". If your website is about "truck tires" and the search engines can clearly understand that your website is about "truck tires" then the amount of the bid you need to make to come up first is greatly reduced. On the other hand, if you are bidding for the phrase "truck tires" and your website is about Pizza the search engines will probably charge you a lot more because they don't won't people to stop using their Pay Per Click.
What Percentage of People Use Pay Per Click
Believe it or not, despite that the sponsored or pay per click advertisements are shown first and at the top of the page in most search engines less than 5% of people actually click on them when doing a search. This is because over the years they have learned that sponsored links can often be someone selling something that has nothing to do with what they just searched on.
Where do the Other 95% of People Click
95% of the people on the Internet do not click on sponsored links. A small percentage of them (about 5%) will click on things such as Google's Local Listings but again the problem is that these links were created by a search engine grabbing from many different sources (Phone books, other sites, etc) and so often the information is wrong. The reality is that 90% of people click on the Organic Listings which are under the other two types of listings. They do this because these links tend to give them exactly what they are looking for.
Should I Use Sponsored Links
We recommend that the first thing you do is create an optimized website with the objective or ranking so high that you don't need to pay for hugely expensive sponsored links. If there are a few phrases you would like to show up for and your website does not rank for them, then if the cost per click allows you a profit after all the clicks that do not buy, then using a sponsored link may actually make good business sense.
We Can Help
By the way, while we aren't overly found of Sponsored Links (We prefer to build websites that rank for keywords relating to your products and services because this is much cheaper for you in the long run) we can and do show clients and ask how to greatly reduce their cost per click.
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